Don’t pitch Rajan against Subbarao

While the euphoria over Raghuram Rajan’s appointment (as the chief of Reserve Bank of India) in the markets is not misplaced altogether, it might do the investors and the business sector a great deal of good if it stops demonising the former RBI governor Duvvuri Subbarao. The rupee, which has been showing signs of recovery since Rajan took over, and gained 1.6 per cent against the dollar, is only a faint indication of what the scenario could look like in the days to come. Therefore, pronouncing Rajan as victorious, or loser, as the case may be, is definitely not the way to go as far as the fiscal health of the country is concerned. Governor Raghuram Rajan unveiled a series of proposals to shore up the rupee and open up markets when he assumed his current post, but the Chicago’s Booth school alumnus hasn’t yet unleashed a miracle solution to prop up the sagging rupee. In fact, Rajan has displayed a wonderfully independent streak of mind, not bowing down to either the government or the market forces, thereby walking a tightrope between the opposing poles of conflicting interests. While traders and stock market analysts wait for the politically tough reforms that are needed to ‘fix’ the economy, Rajan, the former chief economist of the International Monetary Fund, has been carefully treading the path sprinkled with glass shards, and not taking any drastic measures.

It’s a fallacy to compare Subbarao with Rajan, since the former, too, had inherited a wildly fluctuating economy and had done ample work to shore it up and shield it from the global shock waves that had been unleashed by the 2008 Wall Street crash. Clearly, the current economic slump has more to do with the US’ decision to taper off its short-term loan schemes that had in 2009-11 pumped in great reserves of liquid capital into the emerging markets of developing economies, particularly India, Brazil and Turkey, all of which have been facing a currency crisis. Moreover the withdrawal of the quantitative easing has led to a current account deficit of over 80 billion US dollars per month and no amount of banking measures by the RBI can immediately cure the ailments plaguing the economy as of now. Hence, it would be prudent to give Raghuram Rajan time and mind space to bring in innovations in the banking sector, before jumping into a conclusion, whether positive or